A Bad Summer for Stocks? This Fall Could Be Worse

Market pros are looking at several key factors to determine the market's behavior through the balance of 2008, but none seems to be more prominent than the consumer.

"I think it will be predicated on how money managers think this is unwinding," Krosby says. "They want to see a stabilization in the financials, they want to see credit spreads come lower, they want to get a better sense of the election dynamics and you want to get a better sense of the global backdrop."

"Again, everything is predicated on the consumer and the consumer's sense of his job security. There are many moving parts."

Krosby believes that if back-to-school sales look strong it could inject some confidence into the market. Wall Street also will be watching the performance of some of its bellwethers to gauge the economic health not only of the US economy but the rest of the world as well.

Some expect the news in that regard may not be so great.

"I think that we're going to get negative growth in consumer spending for the first time since 1991 in the third quarter," says David Ressler, chief economist at Nomura Securities in New York. "Consumers at least are certainly in a very weakened state and that's going to be evident in the data going forward."

That likely would be bad news for the stock market, though Ressler also is among those who think the downturn might not devolve into a worst-case scenario.

"The stock market is not for nothing considered a leading economic indicator," he says. "Stock prices are going to soon reflect a belief that the second half of 2009 is going to look a lot better than at least the last few quarters have been, but it's still a year down the road before we get a meaningful bounce in the overall economy's activity."

The Case for the Bulls

Not everyone thinks the market is in freefall, or is even headed for a significant rough patch.

Michael Cohn, of Atlantis Asset Management, says the recent steadying in financials and the slight uptick in some housing data has him encouraged for the first time in more than a year about the market.

"The bad news is decelerating," Cohn says. "We've gone through almost three quarters of this quote unquote credit crunch where you could have gotten some really bad numbers out of the economy and it's just not happening."

Even amid his optimism Cohn says there likely won't be any significant bounce until after the election, yet he does not see a downturn before then either.

"We had a nice commodities selloff," he says. "We're going to get nice numbers for inflation next month because of the way oil has gone down at the gas station. Soft commodities have also pulled back. They see there's going to be potentially good news coming in September and October in terms of reversing the bad news that's had a cloud over this market."

Gordon Charlop of Rosenblatt Securities thinks stocks may have found some stability. See his comments in video above.

Cohn is avoiding housing stocks but is advising Atlantis's traders to start picking up market stalwarts. Among those he is watching are Boeing

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[BA  Loading...      ()   ] and CNBC parent General Electric

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[GE  Loading...      ()   ], along with infrastructure plays including McDermott International

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[MDR  Loading...      ()   ] and Jacobs Engineering

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[JEC  Loading...      ()   ].

As for financials, he's cherry-picking at this point and advises against plays on ETFs that go long on the whole sector.

On the overall picture, he thinks the market only needs a strong dose of positive thinking to set it back on the path higher.

"There's a tremendous amount of cash on the sidelines just waiting to see this deceleration in the bad news," Cohn says. "Conventional wisdom says the market looks six to nine months ahead. Conventional wisdom is a self-fulfilling prophecy when everyone believes it."